TMI Blog2013 (11) TMI 1320X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of raw material consumed being bauxite is at 347563 MT is Rs.14.04 crores as against in the assessee's case the aluminium ingots and sheets are 25845 MT costing Rs.266 crores - This itself clearly shows that the very foundation of the manufacturing process being the raw materials are difference in the case of MALCO and the assessee - MALCO is manufacturing aluminium ingots and trading in aluminium ingots also whereas the assessee's primary raw material is aluminium ingots. Thus even on this ground MALCO cannot be treated as comparable to the case of the assessee. MALCO is a debt free company, insofar as it has a debt of only Rs.21.77 crores as against Rs.184 crores in the case of the assessee - The interest cost in the case of MALCO being Rs.77 lakhs as against Rs.30 crores in the case of the assessee would make a substantial dent in the profit - Net result of the Transfer price adjustment is an amount of Rs.19.34 crores. If the adjustment in respect of annual financial charges are made then this differential would get completely wiped out as the differential in the interest burden is Rs.30 crores in the case of the assessee whereas it is only Rs.77 lakhs in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions entered into by the assessee with its AEs by adopting MALCO as a comparable company. 7. That on the facts and in the circumstances of the case, the ld. TPO/A.O./DRP erred in making a disallowance of Rs.2,20,000/- u/s 35AC of the I.T. Act, 1961. 8. That on the facts and in the circumstances of the case, the ld. TPO/A.O./DRP erred in making an addition of Rs.1,06,000/- on account of donation. 9. That on the facts and in the circumstances of the case, the ld. A.O. erred in not allowing the claim in respect of expenses pertaining to previous years amounting to Rs.2,07,08,042/- while passing the final assessment order u/s 143(3) though the said expenses had been allowed in the draft assessment order passed by the A.O. 10. That on the facts and in the circumstances of the case, the ld. A.O. erred in not allowing the claim of expenses pertaining to previous years amounting to Rs.2,07,08,042/- by altering the draft assessment order beyond jurisdiction since the said claim was not effected nor was a ground of appeal before DRP. 11. That further ground (s) of appeal may be submitted on or before the date of hearing." 4. At the time of hearing the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. The assessee had objected to the seven companies on the ground that the seven companies were not functionally comparable. This submission of the assessee found favour with the TPO and consequently the TPO shifted from Prowess Database adopted by both the assessee and the TPO, to the Capita line Data base monitored by Centre for monitoring Indian Economy. This was because the search analysis on the prowess database yielded no result with the turnover filter between Rs.500 crores to Rs.1500 crores when applied. The search resulted in 2 companies as mentioned by the TPO one being the assessee itself and the other MALCO. Ltd. The comparable profits to the turnover cost yielded result in the case of MALCO was 17.72% as against 10.69% shown by the assessee. It was the submission that the TPO adopted 17.72% as disclosed by MALCO and made the adjustments. The TPO's order was adopted by the AO in the draft assessment order. The assessee had proceeded before the DRP in respect of the TPO's order. It was the submission that before the DRP the assessee had specifically challenged that the assessee had not been provided with any opportunity for treating MALCO as comparable and maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven though the DRP recognized that the principles of natural justice had been violated, just because the assessee had obtained the financials of MALCO it held that what had not been done by the TPO has been corrected by the DRP and consequently overridden the objection that the principles of natural justice had not been followed. It was the further submission that the assessee had before the DRP specifically objected to adopting of MALCO as a comparable as MALCO held mining rights for 2027.79 acres of land and bauxite being the primary raw material has been sourced from these mines during the entire year. It was the submission that the assessee did not have any such captive mines and Aluminium ingots were purchased by the assessee. It was the submission that consequently the assets employed by MALCO were completely different from the assets employed by the assessee. It was the submission that this specifically affected the costing in respect of the raw materials consumed in respect of that of MALCO and that of the assessee by 5.93%. It was the submission that the costing of the raw materials consumed in the case of MALCO was 73.8% as against that of the assessee at 79.01%. It was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the further submission that the DRP had consequently accepted the TPOs adjustment of 17.72% as against assessee's 10.69%. It was the submission that even at the outset if the adjustments of the electricity expenses and the raw material consumption difference being 1.01% and 5.93% coming to 6.93% was adjusted against 17.72% adopted in the case of MALCO, the difference between the arms length margin of the assessee and MALCO would be negligible i.e. 10.69 in the case of the assessee and 10.78 in the case of MALCO. It was the further submission that the assessee had categorically prayed that the arm's length margin had been applied by the TPO on the entire operating cost of the assessee whereas the functions performed by the assessee was a retail seller and was different from that of MALCO which was a manufacturer. It was the submission that the TPO had rejected the assessee's application on the ground that no segmental data of manufacturing and trading schemes had been provided. It was the submission that however, the DRP had directed that the adjustments of the arms length margin was to be limited on total sales to AE only. It was the submission that the DRP failed to appreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was the submission that even after holding the strategic investment in a sick company MALCO was able to show a markup of 17.72%. It was the submission that India Foils Ltd. had been considered by the assessee as comparable though subsequently dropped in its Transfer Pricing Study. It was the submission that the DRP had considered all the objections of the assessee and the same have been rejected. The order of AO as a consequence of the DRP was liable to be upheld. 7. We have considered the rival submissions. A perusal of the submissions of the two sides as also the order in appeal before us clearly show that the issue before us is to consider whether MALCO is comparable to the assessee for the purpose of determining of arm's length adjustments, if any. A perusal of the order of the TPO which has been placed before us by the ld. DR shows that the TPO has accepted that the assessee is a manufacturer and exporter of aluminium coils, hot and cold rolled steel sheets, galvanized corrugated roofing sheets, crown corks, caps, glass bottles etc. The TPO has adopted the TNMM method which would stand confirmed insofar as the assessee has not pressed its grounds against this adoption. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. This clearly and unilaterally show that MALCO is in the business of manufacturing of Properzi Rods and its sales as it is the primary business,. The fact that MALCO has used nearly 85% of its annual installed capacity in respect of the Properzi Rods only shows that its intention and its action were specifically for manufacturing of Properzi Rods only. In fact the management discussion and analysis found at page 390 of the paper book more specifically at page 392 of the paper book it has been categorically mentioned that during the year under review, the company produced 37,635 MT of aluminium. Production of Properzi Wire rods, having higher realization than ingots was 31,254 MT. It further clarifies that the company "MALCO" produced 3408 MT though the company is relatively small compared to other domestic Aluminum majors, it has a strong presence in the Southern India with a market share of more than 50%. Further in the overview in the Financial Report of MALCO it has recorded that it enjoys the distinction of being a premium aluminium wire rods producer with the largest market share in South India. It also recognizes that its bus bars are a critical product used in aluminium sm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced and Kolly Hills. Further, a perusal of schedule forming part of the accounts under the head "raw material consumed" shows an increase in the quantity of bauxite. Further, in the case of MALCO it has shown mining expenses which is found at page 426 of the paper book. Further a perusal of the raw material consumed in the notes of the accounts show that MALCO used bauxite as its raw material. When this was compared with the assessee's accounts it showed that the raw material consumed in the assessee's case is aluminium ingots and aluminium sheets. A perusal of the costing of the same shows that in the case of MALCO the value of raw material consumed being bauxite is at 347563 MT is Rs.14.04 crores as against in the assessee's case the aluminium ingots and sheets are 25845 MT costing Rs.266 crores. This itself clearly shows that the very foundation of the manufacturing process being the raw materials are difference in the case of MALCO and the assessee. Here we may also mention that MALCO is manufacturing aluminium ingots and trading in aluminium ingots also whereas the assessee's primary raw material is aluminium ingots. Thus even on this ground MALCO cannot be treated as comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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